Question

The basic wacc equation the calculation of a weighted average cost of capital (wacc) involves calculating the weighted average of the required rates of return on debt and equity, where the weights equal the percentage of each type of financing in the firm's overall capital structure. is the symbol that represents the before-tax cost of debt in the weighted average cost of capital (wacc) equation. shen co. has $3.34 million of debt, $1.12 million of preferred stock, and $1 million of common equity. the appropriate weight of the firm's preferred stock in the calculation of the company's weighted average cost of capital is .

Answer 1

The total capital assets of the business = Total debt + Total preferred stock + Total common equity

Total capital assets = 3.34 + 1.12 + 1 = 5.46 Million

Weight of firm's preferred stock in calculation of WACC = preferred capital/ total capital assets = 1.12/5.46 = 0.2051 = 20.51%

Weight of firm's preferred stock in calculation of WACC = 20.51%